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How to... calculate the return on L&D

For many learning and development (L&D) professionals, the primary criteria used to measure the success of learning and development programmes are the "happy sheets" that ask if the delegates enjoyed the course, found it effective and liked the main presenter.

Organisations would not dream of rating other areas of budget spend in such a genteel way, but most people believe it's almost impossible to calibrate budget spend on L&D. They're mistaken - here's how to link the two.

1 Establish the prime purpose

There are three main reasons for providing L&D: compliance, developing core skills and creating competitive advantage. We call these the three Cs of L&D. Each of these needs a different approach to calculating return on investment (ROI).

2 Understand compliance

Where ROI techniques can make a difference is in understanding which compliance programmes have the potential to add value and which don't. For example, if you train the required number of people in first aid techniques, you probably hope they'll never have to use the training. On the other hand, if you are running a building site, effective health and safety procedures will reduce accidents and so reduce costs.

3 Focus on core skills

ROI analysis can really help here, but you need to take all the training goals into account. Using an NHS trust as an example, let's say it is focusing on delivering savings of 8.5 per cent next year without cutting front-line services. Inevitably the training budget will face cuts. Measures of success will focus on maintaining high levels of user satisfaction and employee engagement in a very cost-conscious environment. The trust will need to show both budget savings and that training remains effective. Simply axing X per cent of programmes won't do. A crucial first step is to measure the effectiveness of current programmes against stated priorities of user satisfaction and employee engagement.

4 Gain competitive advantage

When training budgets are cut, programmes that focus on creating competitive advantage are usually the first to go - but not if L&D managers can show how these programmes are the drivers of long-term organisational goals.

5 Measure L&D effectiveness

To measure effectiveness you need a clear definition of what aspect of it you are focusing on. Continuing with the NHS trust example, each programme could be analysed with respect to how much it contributes to meeting user satisfaction priorities and how much it contributes to employee engagement. For example, if programme A scored four for user satisfaction and two for employee engagement it would have an overall score of six out of eight, or 75 per cent against the two top priorities. If it cost £75 for each person then the cost per percentage of contribution is £1 per person.

6 Use ROI to compare different programmes

Rolling this analysis out over multiple courses will enable you to compare the relative cost of delivery. You can rank all your core programmes in terms of their cost per contribution. Thus you have a practical, finance-based tool to help you decide which programmes are most effective. Clearly, this is not the only factor in deciding which programmes can stay, be changed or adapted, but it is a good place to start.

Key points

- Choose an ROI approach based on the main training purposes of compliance, core skills or competitive advantage.
- Base effectiveness measures on organisational priorities.
- Measure effectiveness with respect to the priorities, not solely on formal learning objectives.
- Compare cost effectiveness across all programmes.